Lease Car - Company charging VED/Road Tax

matt_drummer

Cueba11uk said:

Greetings all,

So I find myself here to discuss options about this subject as I find myself in the same position having an unexpected VED charge levied upon my vehicle after leasing it for 2 years now.  In my case I am subject to £195 VED.
I am not actually complaining about the VED charge itself, as it is what is but about the lease company adding a further VAT charge to the VED.  I find this unethical in many ways
I contacted my lease company to query this and the representative told me it was a 'service charge' they were entitled to add because they are applying for the VED from HMRC.  But in my case the invoice they sent clearly states it's 20% VAT on the VED and not a service charge.  For me a service charge is a fixed fee for a service but by levying it in this manner a vehicle subject to £1000+ VED will be charged significantly more for the exact same service to apply for VED as a vehicle that only attracts a £35 VED.  This is just profiteering. 

Further to that, according to HMRC's own advice in the link from the above post, this is classed as a disbursement and therefore not suitable to attract VAT. I would argue that for the purposes of applying for VED it meets all the criteria to class it as a disbursement. If they argue that it's a cost service then it should be itemised as a separate charge which then has a VAT component attached only to that specific item
I think it's high time these lease companies are held to account for this practise of adding VAT to the VED charge because I can only imagine the 10's of thousands of people paying anything from £5 to over £400 extra in a trumped up VAT charge each year.
Any advice on how to proceed with this on a wider scale would be appreciated 

The lease companies do not benefit in any way, the VAT charged is passed on to HMRC, they don't get to keep it.

Any supply of goods or services by a VAT registered business are charged at 20% unless there is a reason not to do so.

That is the default position.

In this case, a leasing company cannot supply you with VED.

They pay the VED as they are the registered keeper of the vehicle.

It cannot be a disbursement as the VED is their expense and their responsibility, it is not an expense paid on behalf of the hirer and therefore, not a disbursement.

They charge you an identical amount as per the terms of your lease, but the amount is liable to VAT at the standard rate of 20%, there is no reason for them not to, the supply is not one at a lower rate or exempt from VAT.

They have no choice.

However, they don't benefit, HMRC do.

sheramber

VAT is an HMRC charge which they collect on behalf of HMRC and have to account for it in the VAT returns.

It does not go into their coffers. 

Car_54

matt_drummer said:

Cueba11uk said:

Greetings all,

So I find myself here to discuss options about this subject as I find myself in the same position having an unexpected VED charge levied upon my vehicle after leasing it for 2 years now.  In my case I am subject to £195 VED.
I am not actually complaining about the VED charge itself, as it is what is but about the lease company adding a further VAT charge to the VED.  I find this unethical in many ways
I contacted my lease company to query this and the representative told me it was a 'service charge' they were entitled to add because they are applying for the VED from HMRC.  But in my case the invoice they sent clearly states it's 20% VAT on the VED and not a service charge.  For me a service charge is a fixed fee for a service but by levying it in this manner a vehicle subject to £1000+ VED will be charged significantly more for the exact same service to apply for VED as a vehicle that only attracts a £35 VED.  This is just profiteering. 

Further to that, according to HMRC's own advice in the link from the above post, this is classed as a disbursement and therefore not suitable to attract VAT. I would argue that for the purposes of applying for VED it meets all the criteria to class it as a disbursement. If they argue that it's a cost service then it should be itemised as a separate charge which then has a VAT component attached only to that specific item
I think it's high time these lease companies are held to account for this practise of adding VAT to the VED charge because I can only imagine the 10's of thousands of people paying anything from £5 to over £400 extra in a trumped up VAT charge each year.
Any advice on how to proceed with this on a wider scale would be appreciated 

However, they don't benefit, HMRC do.

Surely we all do? (Except the OP.)

facade

I covered this before

If the car is registered in your name so that you are responsible for paying VED then the VED would be a disbursement- a charge that you are liable for, but paid by the lease company on your behalf, and so would not be subject to VAT.

As the car is registered in their name, they are responsible for paying VED and when they pass the cost onto you, (as per the T&Cs of the lease agreement) VAT is payable by you.

https://www.gov.uk/guidance/vat-costs-or-disbursements-passed-to-customers

Cueba11uk

matt_drummer said:

Cueba11uk said:

Greetings all,

So I find myself here to discuss options about this subject as I find myself in the same position having an unexpected VED charge levied upon my vehicle after leasing it for 2 years now.  In my case I am subject to £195 VED.
I am not actually complaining about the VED charge itself, as it is what is but about the lease company adding a further VAT charge to the VED.  I find this unethical in many ways
I contacted my lease company to query this and the representative told me it was a 'service charge' they were entitled to add because they are applying for the VED from HMRC.  But in my case the invoice they sent clearly states it's 20% VAT on the VED and not a service charge.  For me a service charge is a fixed fee for a service but by levying it in this manner a vehicle subject to £1000+ VED will be charged significantly more for the exact same service to apply for VED as a vehicle that only attracts a £35 VED.  This is just profiteering. 

Further to that, according to HMRC's own advice in the link from the above post, this is classed as a disbursement and therefore not suitable to attract VAT. I would argue that for the purposes of applying for VED it meets all the criteria to class it as a disbursement. If they argue that it's a cost service then it should be itemised as a separate charge which then has a VAT component attached only to that specific item
I think it's high time these lease companies are held to account for this practise of adding VAT to the VED charge because I can only imagine the 10's of thousands of people paying anything from £5 to over £400 extra in a trumped up VAT charge each year.
Any advice on how to proceed with this on a wider scale would be appreciated 

The lease companies do not benefit in any way, the VAT charged is passed on to HMRC, they don't get to keep it.

Any supply of goods or services by a VAT registered business are charged at 20% unless there is a reason not to do so.

That is the default position.

In this case, a leasing company cannot supply you with VED.

They pay the VED as they are the registered keeper of the vehicle.

It cannot be a disbursement as the VED is their expense and their responsibility, it is not an expense paid on behalf of the hirer and therefore, not a disbursement.

They charge you an identical amount as per the terms of your lease, but the amount is liable to VAT at the standard rate of 20%, there is no reason for them not to, the supply is not one at a lower rate or exempt from VAT.

They have no choice.

However, they don't benefit, HMRC do.

But I spoke to HMRC about it this morning and were very interested in hearing about it.  The representative confirmed (which is also stated on their site) that VED is a tax and can't be subjected to another tax (VAT).  They asked me to write to them with the details

matt_drummer

Cueba11uk said:

But I spoke to HMRC about it this morning and were very interested in hearing about it.  The representative confirmed (which is also stated on their site) that VED is a tax and can't be subjected to another tax (VAT).  They asked me to write to them with the details

They are wrong, as they often are!

Disbursements: costs to exclude from VAT calculations

A payment made to suppliers on behalf of your customers is called a ‘disbursement’ if you pass the cost on to your customers when you invoice them.

You might be able to leave out these payments from your VAT calculations because it’s the customer, not you, who buys and receives the goods or services; you’re just acting as their agent.

To treat a payment as a disbursement all of the following must apply:

• you paid the supplier on your customer’s behalf and acted as the agent of your customer
• your customer received, used or had the benefit of the goods or services you paid for on their behalf
• it was your customer’s responsibility to pay for the goods or services, not yours
• you had permission from your customer to make the payment
• your customer knew that the goods or services were from another supplier, not from you
• you show the costs separately on your invoice
• you pass on the exact amount of each cost to your customer when you invoice them
• the goods and services you paid for are in addition to the cost of your own services

The first three requirements are not fulfilled so not a disbursement and VAT is chargeable at the standard rate

Cueba11uk

matt_drummer said:

Cueba11uk said:

But I spoke to HMRC about it this morning and were very interested in hearing about it.  The representative confirmed (which is also stated on their site) that VED is a tax and can't be subjected to another tax (VAT).  They asked me to write to them with the details

They are wrong, as they often are!

Disbursements: costs to exclude from VAT calculations

A payment made to suppliers on behalf of your customers is called a ‘disbursement’ if you pass the cost on to your customers when you invoice them.

You might be able to leave out these payments from your VAT calculations because it’s the customer, not you, who buys and receives the goods or services; you’re just acting as their agent.

To treat a payment as a disbursement all of the following must apply:

• you paid the supplier on your customer’s behalf and acted as the agent of your customer
• your customer received, used or had the benefit of the goods or services you paid for on their behalf
• it was your customer’s responsibility to pay for the goods or services, not yours
• you had permission from your customer to make the payment
• your customer knew that the goods or services were from another supplier, not from you
• you show the costs separately on your invoice
• you pass on the exact amount of each cost to your customer when you invoice them
• the goods and services you paid for are in addition to the cost of your own services

The first three requirements are not fulfilled so not a disbursement and VAT is chargeable at the standard rate

Please explain in further detail how they are not fulfilled, I am interested in this point of interpretation

WellKnownSid

Cueba11uk said:

matt_drummer said:

Cueba11uk said:

Greetings all,

So I find myself here to discuss options about this subject as I find myself in the same position having an unexpected VED charge levied upon my vehicle after leasing it for 2 years now.  In my case I am subject to £195 VED.
I am not actually complaining about the VED charge itself, as it is what is but about the lease company adding a further VAT charge to the VED.  I find this unethical in many ways
I contacted my lease company to query this and the representative told me it was a 'service charge' they were entitled to add because they are applying for the VED from HMRC.  But in my case the invoice they sent clearly states it's 20% VAT on the VED and not a service charge.  For me a service charge is a fixed fee for a service but by levying it in this manner a vehicle subject to £1000+ VED will be charged significantly more for the exact same service to apply for VED as a vehicle that only attracts a £35 VED.  This is just profiteering. 

Further to that, according to HMRC's own advice in the link from the above post, this is classed as a disbursement and therefore not suitable to attract VAT. I would argue that for the purposes of applying for VED it meets all the criteria to class it as a disbursement. If they argue that it's a cost service then it should be itemised as a separate charge which then has a VAT component attached only to that specific item
I think it's high time these lease companies are held to account for this practise of adding VAT to the VED charge because I can only imagine the 10's of thousands of people paying anything from £5 to over £400 extra in a trumped up VAT charge each year.
Any advice on how to proceed with this on a wider scale would be appreciated 

The lease companies do not benefit in any way, the VAT charged is passed on to HMRC, they don't get to keep it.

Any supply of goods or services by a VAT registered business are charged at 20% unless there is a reason not to do so.

That is the default position.

In this case, a leasing company cannot supply you with VED.

They pay the VED as they are the registered keeper of the vehicle.

It cannot be a disbursement as the VED is their expense and their responsibility, it is not an expense paid on behalf of the hirer and therefore, not a disbursement.

They charge you an identical amount as per the terms of your lease, but the amount is liable to VAT at the standard rate of 20%, there is no reason for them not to, the supply is not one at a lower rate or exempt from VAT.

They have no choice.

However, they don't benefit, HMRC do.

But I spoke to HMRC about it this morning and were very interested in hearing about it.  The representative confirmed (which is also stated on their site) that VED is a tax and can't be subjected to another tax (VAT).  They asked me to write to them with the details

A call-centre / chat operative is not a tax expert, having dealt with HMRC many times over the years there are really only a few people that really fully understand tax.

Worse, the Dunning-Kruger bias is often strong because of the organisation they work for, and I’ve enjoyed proving the adage “if you look hard enough you will always find a problem” to be both incorrect and expensive (to the tax payer, I guess) on more than one occasion.

matt_drummer

Cueba11uk said:

The first three requirements are not fulfilled so not a disbursement and VAT is chargeable at the standard rate

Please explain in further detail how they are not fulfilled, I am interested in this point of interpretation

They did not pay the supplier (DVLA) on your behalf or as your agent as they (the lease company) are responsible for the VED as the registered keeper.

The hirer has not received any benefit of goods or services paid for on their behalf (the lease company is responsible for the VED as the RK so nothing has been paid for on behalf of the hirer)

The lease company was responsible for paying the VED as the RK, it was and never will be the responsibility of the hirer.


If it makes any difference, I am a qualified accountant.

facade

Cueba11uk said:

Please explain in further detail how they are not fulfilled, I am interested in this point of interpretation

The registered keeper is responsible for paying VED.

The lease company is the registered keeper not you.

They did not pay the VED on your behalf- it was on their own.

It was not your responsibility to pay the VED it was theirs.

If they go on to add an "administration charge" for having to invoice you to pass on their charges (as per the T&Cs of the lease agreement) then the "administration charge" would be a simple service charge and subject to VAT.